Exercise: Seed of an Idea

Stanford’s Tina Seelig describes a classroom experiment (below) where students were given $5 of “seed” funding and 2 hours to make as much money as possible. The best teams made money by working outside of the stated constraints (e.g., ignoring the seed funding & timeframe). Understanding their human capital and unique resources was critical. This really simple exercise gets at the crux of entrepreneurial opportunity.

Contributed by Russ Coff

Winner’s Curse: Online Edition

auction-0Gourmet adventures is a very nice exercise to demonstrate the Winner’s curse in class. The key takeaway there is that decision-makers need to try to understand how certain they are in order to figure out how much to shade their bids — something that few managers actually do. If you have an online course or don’t have time to do this in class, you might consider this simple winner’s curse online simulation (by Mike Shor). The Java applet works nicely to simulate bidding competition over a target including an estimate of the private synergies. Note that you may have to turn off popup blockers and lower security settings for the web page to run properly.

Contributed by Russ Coff

Paper Fight Exercise

Having a paper fight in class can really shake things up. It also allows you to demonstrate some simple competitive dynamics principles in a very short exercise. I use this with evening, executive and BBA students — generally on the first day of class to shake things up and introduce the topic.

Learning Objectives:

  • Industry evolution and performance targets.
  • Strategic resources & competitive advantage
  • Dynamic capabilities and hyper-competition
  • Competitive dynamics and game theory
  • Improvisation and strategy
  • Shake things up!

Process/Setup (<5 min): Continue reading

MicroDesign Negotiation: Cross-business coordination

This exercise focuses on the problems with designing incentives and structures to promote the cooperation across divisions needed to achieve synergies. MicroDesign is a negotiation to transfer a technology between 2 divisions of a corporation in order to take advantage of a market opportunity. Sub-optimal agreements (money left on the table) represent transaction costs and inefficiencies that must be overcome in order to create corporate value.

There are two roles (Gant and Coleman). One division, Household Appliances (HA), has developed a new technology that has value if sold outside of the company. However, the division does not have a charter to sell chips. In order to take advantage, the technology must be transferred to the Chips & components (CC) division. Continue reading

Value Chains: A flighty topic…

Norman Sheehan has developed an award winning exercise to teach value chain analysis (see the JME paper). Here are excepts from the abstract: Despite its ubiquity, many students struggle to understand and apply value chain concepts. JetFighter uses a complex manufacturing process (intricate paper planes) to enhance students’ value chain competencies. Teams are use value chain concepts to develop innovative strategies to fulfill customer requirements and outperform rivals. The exercise involves two production periods with a brief value chain lecture occurring after the first period. Given that teams typically lose money in the first round, their motivation to learn is enhanced as they are immediately provided an opportunity to apply this knowledge in the second period. Here are materials for the exercise:

Contributed by Norman Sheehan

Aventures Gastronomiques: Recursed

You may recall the Gourmet Adventures exercise on the winners’ curse in M&A. This is a nice exercise to emphasize the risk of overbidding in M&A. Elisa Operti has taken this a step further. She writes: “I love using the Gourmet Adventures exercise in my Corporate Strategy course. I have been teaching in France and Italy in recent years. Thus, I developed a European version of the game (see the Aventures Gastronomiques Instruction sheet). I use a jar with 1€ coins, 10cents coins and 5cents and updated all the references (diameter, labels, etc…). I’ve labeled the restaurant chains after the French hero celebrated on each type of Euro coin. As a final suggestion, I found that, in this context, the game works perfectly with small groups (3-4 students).” The only thing I might add to this is that you may want to use coins from different countries to capture how country risk may increase the risk of the winners’ curse (e.g., it introduces more error/uncertainty into the valuations). Often students have been introduced to the concept of the winners curse. The point here is to emphasize that the strategic aspects of M&A (country risk, diversified targets, synergies, etc.) increase the risk by injecting uncertainty into valuations.

Contributed by Elisa Operti

Paperscape: Building on the RBV

This exercise from Norman Sheehan is based loosely on the Tinkertoy exercise (on this site). The main difference is that groups get unequal resource endowments (one group gets tape and paper, while the rest get paper clips, elastic bands and paper) and are asked to build the highest paper tower. The results lead to a discussion of how superior resources (tape) can lead to better performance if they are organized properly. The takeaway is that students need to see if their focal firm has a tape-like resource. If so, they need to make it the cornerstone of their strategy. If the focal case firm lacks a tape-like resource, then it needs to be excellent at execution if it is to have any chance at having above average performance. Students love the exercise and it is a great way to teach students why they should look for VRIO resources when doing a case analysis. A related exercise, the Egg Drop Auction, explores strategic factor markets and the accumulation of heterogeneous resources. Here is the Paperscape Teaching Note (published in JME) and here are Discussion Questions to assist in the debriefing.

Contributed by Norman Sheehan

Prescription for Corporate Governance

This exercise from Norman Sheehan and Kay Keels addresses corporate governance and ethics (see the Jensen Pharma Teaching Note). Here is the setting: A pharmaceutical firm’s board must decide what to do with its best selling drug, Dekanor, in light of research that suggests that the drug may be causing serious harm. This reflects the ambiguity and choices Merck’s and Pfizer’s boards may have experienced in the years before they knew if their “blockbuster” drugs, Vioxx, Bextra and Celebrex, were harming patients. For example, the role play includes the impact of social media, pressure from rivals, and tactics sometimes used by pharmaceutical companies to discredit negative research studies. Board members are asked to choose between options including: 1) preemptively remove Dekanor from the market, 2) continue selling Dekanor but add additional product warnings and stop actively marketing the drug, or 3) continue to aggressively market the drug and fight to keep the FDA from banning it. The 14 roles include Jensen’s Chairperson and CEO, its five board members, and eight managers (click here for the Jensen Pharma Roles and Agenda). Each must balance his/her corporate agenda with his/her personal agenda. For example, some own considerable amounts of valuable stock that may affect their decisions.

Contributed by Norman Sheehan and Kay Keels

Get Out of Jail Free

There are many game theory simulations available online to supplement lectures and cases. If you have limited class time or are teaching a distance course, these simulations can be especially valuable because, unlike video lectures or PowerPoint voice overs, these are quite interactive. Here are some examples:

If you really need a video, this one from Greg Mankiw’s page should work. See also the classic Dilbert Prisoner’s Dilemma video.

Contributed by Russ Coff

Oligopoly in the Classroom

Another 3-E Learning exercise explores market structure through an extra credit scheme. Michael Ryan’s Oligopoly Classroom Experiment allows students to get extra credit for suggesting questions for the next test based on how many questions are submitted. Each student must choose to whether to submit a question related to the topics covered. At the beginning of each class, the instructor informs the students how many total questions have been submitted but does not mention who submitted them. Here is the schedule for extra credit points:

  • If one student submits a question before the deadline, he/she gets 10 points. If two students submit, both get 9 points. If three students submit questions, each get 8 points and so on.
  • If 11 or more students submit questions, none of them receive points.
  • However, if no students submit questions, then every student in the class receives five bonus points.
  • The instructor may also add conditions to this exercise which make collusion more likely or less likely by simulating an increased number of ‘firms’ and an inability to detect when other ‘firms’ change their strategy.

Here is a more detailed writeup from Classroom Expernomics.

Contributed by Michael Ryan

Social Network Bingo

social20networkWe often try to convey to students how value can be created in social networks as actors gain access to more resources and knowledge. This exercise is a simple game of bingo where players have a list of resources they need to find to win the game (4 boxes in a row). To play, they simply find people in the room with specific attributes or knowledge and have them sign their card. I have added a simple twist that they can complete one box using an indirect tie (e.g., a friend of a friend). This teaches the very basics of social networks and serves as a nice ice breaker as well. Here are two Bingo card created for: 1) an exec ed program and 2) for a PhD Student Orientation. This gives you an idea of how to customize the exercise for the group. This can be useful to explore alliance networks at the organizational level or the role of individual networks in strategy formulation and implementation.

Contributed by Michael Sacks

A Focused Planning Meeting

Robert Wright offers an experiential exercise to get planning teams to think more deeply about their unstructured problems. He suggests applying his “FOCUSED” framework by having them consider a challenging problem and roll his specially designed dice (here is the pattern for the dice). This prompts them to address issues in each aspect of the framework. See his video below explaining the framework and the process for the exercise.

Contributed by Robert Wright

A Drinking Problem: Pepsi Challenge

The 3E Learning site discussed in another post includes a nice writeup on using the classic Pepsi challenge but including generic soda. Here is an excerpt: “In this exercise, student volunteers blindly taste three different soft drinks: Coke, Pepsi, and a store brand. The student then tries to assess which one each drink is. Across several years of performing this, in every semester a majority cannot identify their preferred drink, nor can many identify any of them correctly. After several volunteers make the attempt, the class engages in meaningful conversation about how and why Coke and Pepsi capture so much market share, when their products cost 50% more than store brands.” What, then, is the basis for competitive advantage when imitation is so evident? It’s worth noting that Pepsi did not include generics in the original challenge — why might that be?

Feedback about the exercise (from 3E-Learning)
  • “The soda taste test definitely opened my eyes to realize the importance of branding, marketing, and customer brand loyalty in a business.” Continue reading

Team Capability Inventory

You can take internal analysis down to the team level with a quick introductory exercise. The object is to find some commoFantastic4n capabilities across the team (beyond the obvious) and to find some unique capabilities that each person brings to the table. Then the team must describe how some of the unique capabilities could be leveraged in a team project.

  1. Objective: Find Capabilities. Uncover 3 abilities all members of this small group have in common (other than the obvious things such as you have taken the same classes). For example, all may have strong spreadsheet skills or all are good at interviewing. Then identify 1 capability that is unique to each person in the group. For example, only one is an accomplished musician or has contacts in the insurance industry. Continue reading

Jay’s Coinflip: Innovation as luck

coinflipJay Barney describes a coin flip exercise to make the point that innovation might be modeled as an outcome of pure luck.  If so, how can firms manage such processes? The exercise is simple:

  • Distribute coins to the class and have them flip.
  • Those who flip “heads” remain standing, “tails” sit down (unless everyone gets a tail – then they remain standing)
  • Repeat until one person is standing & pass all coins to him/her

Discussion focuses on several key points (Russ Coff’s slides emphasize real options):

  • What capabilities/skills did the winner have? Make a big show of trying to find out how the winner did it (it’s all in the wrist, etc.). Often the winner will have flipped 5 in a row or more (a 3% probability?). People will laugh since they know it’s luck.
  • Is it possible that innovative companies are just lucky? We don’t see a lot of repeat innovators and, if it is luck, even these might be explained.
  • Selection bias is a problem if we try and draw conclusions by only looking at winners. In a population (like the class), the probability that someone will flip 5 in a row is rather high. We can only identify causality if we study the whole population.
  • If it is luck, how should one manage investment? This is a nice lead in for portfolios of strategic investments/real options or superior expectations/forecasting.

Contributed by Jay Barney

Merging Cultures: BaFa BaFa

Cultural differences can undermine M&A, alliances, or entry into foreign markets. As such, it may be important to show students how difficult it is to comprehend and coordinate with a different culture. The BaFa BaFa exercise accomplishes this beautifully. This exercise was originally developed for the U.S. Navy to train personnel on how to interact when being exposed to new cultures (see the extended history in this Simulation & Gaming article). The web site describes it as useful in diversity training. That’s true but it is also useful for strategy courses where cultural differences are relevant. The exercise requires about 2 – 3 hours to run so it is more useful for evening or executive courses where you have larger blocks of time. Here is an overview of how the exercise unfolds:

  • Separate the class into two groups that will be trained in the two cultures (you will need two classrooms and assistance in bringing both cultures up to speed).  Continue reading

Winner’s curse at Gourmet Adventures

Often in M&A, there is a concern that the buyer has overbid – especially when there is competition for the target and the risk of winner’s curse is heightened. In essence, if firms bid based on their “unbiased estimates” of the target’s value, the bids may be normally distributed around the true value and the winner is especially likely to have overbid (cursed). The task then, is to shade one’s bid to avoid overbidding. A standard exercise to demonstrate this phenomenon is to have the students bid on a jar of coins (which I describe as a restaurant chain). This is of special interest in a strategy course since the risk of being cursed is driven by the variance around the valuation (not the mean). Variance, it turns out, is driven by aspects of the target that are hard to value. These include strategic resources, human capital, complementarities, cross business synergies (e.g., layers of coins to reflect different target business units), or any other source of uncertainty. As such, even if the winner’s curse is covered in another course, these elements will be specific to a strategy course. Here are materials needed to run the exercise:

  • Instruction sheet describing the bidding/valuation task (and to submit bids)
  • Spreadsheet to record the results and show a simple estimation method
  • PowerPoint slides to lead discussion
  • 500ml jar with quarters, pennies, and nickels (as shown)

If you teach an online course, there is also a nice online simulation of this at GameTheory.net.

Contributed by Russ Coff

Words in Sentences Org Design Exercise

The attached documents (below) contain the instructions to distribute to students and the raw material strips for the exercise. The attached PowerPoint file contains a list of what to prepare before class (slide 1) and the slides for class, including discussion and wrap up slides. It is best to go over the directions in detail in class as, unfortunately, students often do not read the directions very carefully; the verbal overview also gets them thinking about setting up a divisional vs. a functional structure for the task. It really is worth stressing the fact that they need to set up a structure. Choose an external quality control group at the beginning of class — Purposefully pick students who are quick and pay attention to detail for this task, as it will have to be completed in a short period of time.Overall, what tends to happen is that both groups improve from trial 1 to trial 2, however the functional group improves by a much greater amount and generally has fewer QC errors (i.e. words used repeatedly). Continue reading

Alaska Gold Mine Exercise

The Alaska Gold Mine case is my (Mason’s) favorite starter case for undergraduate, MBA, and executive MBA strategy courses. Reprinted here with permission of author Jeffrey Barach along with my PointPoint slides I use to administer the case.

Click to get the:

The video below provides a lot of good fodder to reference back to when doing the exercise. Start the class session by showing the video before doing anything else. Continue reading

Org Change in the Classroom: A ruse

organizational-change-timizzer1-1024x8181The mid course evaluation or any other feedback from students (such as the culture artifact hunt) can be used as a jumping off point for an exercise on organizational change. All you need to do is take their suggestions to a logical conclusion and tell them that you are changing the assignments and/or grading structure. This, of course, is small potatoes compared to real strategic change. However, even if you pick fairly moderate changes, students will typically protest. Then you can discuss the influence tactics used to thwart the proposed change. It can be great fun to play with their heads (but be sure to let them know it was only an exercise)! You might think it unwise to intentionally anger your students as part of an exercise. However, this is a lesson they won’t forget and, if you debrief carefully, they will see why the lesson is so important. Here is an example of the types of changes I announce:

  • Added assignment (to emphasize a new topic they want). Include a few additional readings and a case — hopefully that add up to an expensive additional coursepack (> $10).
  • Change the teams to emphasize diversity, skills, or to increase their inventory of available skills.
  • Change the grading weights (e.g., less emphasis on class participation is guaranteed to make the more vocal people voice their concerns).
  • Add a comprehensive exam (out of concern that the additional studying is needed for them to integrate the materials).

Contributed by Russ Coff